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China's yuan falls, but fears of US trade war may cap depreciation

Monday, February 27, 2017 - 12:09

China's yuan fell against the US dollar on Monday after the central bank set a weaker midpoint to reflect global dollar strength, but traders said room for depreciation is expected to be limited as the threat of a trade war from the US lingers.

PHOTO: AFP

[HONG KONG] China's yuan fell against the US dollar on Monday after the central bank set a weaker midpoint to reflect global dollar strength, but traders said room for depreciation is expected to be limited as the threat of a trade war from the US lingers.

The People's Bank of China set the midpoint rate at 6.8814 per US dollar prior to the market open, weaker than the previous fix 6.8655.

In the spot market, the yuan opened at 6.8762 per US dollar and was changing hands at 6.8752 at midday, 52 pips weaker than the previous late session close and 0.09 per cent stronger than the midpoint.

"The demand for and supply of dollars is quite balanced in the market," said a trader at a Chinese bank in Shanghai.

US President Donald Trump declared China the "grand champions" of currency manipulation on Thursday, just hours after his new Treasury secretary pledged a more methodical approach to analyzing Beijing's foreign exchange practices.

The threat of a trade row from the US limits the room for China to allow further yuan depreciation, supporting the view that the period of one-way depreciation has ended, Macquarie analysts said in a report on Monday.

Authorities are also expected to keep the yuan relatively steady heading into the annual meeting of China's parliament next month, as it typically does during high-profile political events.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.04, weaker than the previous day's 95.06.

The global US dollar index rose to 101.15 from the previous close of 101.09.

Bets on the yuan have turned slightly bearish, but positioning was still close to being neutral, a recent Reuters poll of 16 market participants showed.

The offshore yuan was trading 0.21 per cent stronger than the onshore spot at 6.861 per US dollar.